1. A quick history: When I was taking finance classes in the early 1990s, My finance professor, an intimidating guy from Rochester, NY, impressed upon us all that we'd have to be fools not to be earning 10% in the market. This was largely due to the times. Everyone made money in the early 90s. The way you measure your gains against everyone else is by using CAPM. Your text mentions some shortfalls of CAPM that have popped up over the years. If we assume the problems with CAPM were always there, how might the prevalent use of CAPM have led to irrational capital pricing decisions and how might that affect the value of a company?
3. What are the advantages/disadvantages of financing an expansion with debt rather than equity? Does this change if you are financing a replacement project?